WASHINGTON, March 3 (Reuters) - The Obama administration
was expected soon to name an Illinois state insurance regulator
to head the new Federal Insurance Office, sources familiar with
the matter said on Thursday.

Michael McRaith, seen as the front-runner for the job, is
now head of the Illinois Department of Insurance.

The Federal Insurance Office is being set up to monitor
insurers, such as Allstate (ALL.N) and Travelers (TRV.N), but
not regulate them, under 2010's Dodd-Frank regulation reforms.

The industry is now overseen only by state governments.

The FIO was put into Dodd-Frank to appease opponents of
central regulation by keeping real power out of Washington's
hands. But it also gave some hope to big insurers who want a
single regulator by giving them a foothold they may be able to
expand later.

McRaith could not immediately be reached for comment.

"We don't have any announcements to make at this time,"
said Colleen Murray, spokeswoman for the U.S. Treasury
Department, which must name the FIO director under Dodd-Frank.

McRaith worked for 15 years in private practice as an
attorney in Chicago, representing financial institutions,
including insurers, before being named to his present post,
according to the Illinois insurance department's website.

Besides McRaith, two others are rumored to be contenders
for either the FIO job or a spot for an insurance expert on the
new inter-agency Financial Stability Oversight Council (FSOC).
They are former Treasury official Roy Woodall and current
Treasury staffer Chris Ledoux, industry officials have said.

The naming of the FIO chief will occur as large insurers
try to protect themselves from another Dodd-Frank rule.

It orders regulators to consider whether some large
insurers should be labeled as systemically significant
financial institutions and subjected to tighter government
oversight.

The FSOC will be handling this part of the reforms and
getting adequate insurance representation on the council is
"very, very important," said Republican Representative Judy
Biggert, who chairs the House insurance subcommittee.

"We really need to have the appointments to the council,
which addresses systemic risk," she said in an interview.

"It's important that the state insurance people be
represented because we don't want the Federal Insurance Office
to take over and make this national insurance" regulation.

Biggert and three other House lawmakers, both Republicans
and Democrats, wrote to Treasury Secretary Timothy Geithner on
Feb. 10 urging him to make the insurance appointments to the
council. Biggert said she has received no reply.
(Additional reporting by Dave Clarke and David Lawder; Editing
by Gary Hill)